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So as employee #1 of a ten billion dollar company, what was the equity portion of his compensation like? So many YC companies sell equity as a higher risk repla

by xiaoma 10y ago

So as employee #1 of a ten billion dollar company, what was the equity portion of his compensation like? So many YC companies sell equity as a higher risk replacement for salary. What does the outcome look like in a case like Airbnb where the company was a huge success? Has he even been allowed to keep his shares or sell them on a secondary market like early facebook employees did?

the_economist 10y ago
He likely owns about 0.5 - 1.5% of the company, after several rounds of dilution. So at a $30 billion valuation he is worth somewhere between 150 - 450 million. There is always a way to sell shares, although I don't know if Airbnb has made a formal offering available to employees.
- a_small_island 10y ago
  Do you have a source or are you just guessing?
  - gargarplex 10y ago
    I know AirBNB has let some employees take $ off the table in financing rounds. http://allthingsd.com/20111002/airbnb-investor-chamath-palihapitiya-settle-differences-with-employees-to-get-liquidity/ http://allthingsd.com/20111002/airbnb-investor-chamath-palih... My guess is that 0.5% is too high of a floor for post dilution and he probably had 10bps to 50bps at most
  - the_economist 10y ago
    Just guessing, and assuming they were relatively generous with equity since they seem like the type of company that would be.
- webwright 10y ago
  I'd guess more .2 - 1.0 after rounds of dilution, but it depends on when he came on board. The $30B valuation is preferred shares, right? If he sold any before liquidity, it'd be common shares, which is often deeply discounted (~33% of preferred).
  - mrgordon 10y ago
    Yes I agree, 0.5% is quite a high estimate for being the low end of the range. Airbnb common shares as well as those of other hot startups (e.g. Uber) are trading fairly close to the price of preferred though if one obtains liquidity.
- limeyx 10y ago
  Thats also assuming he was able/willing to exercise a bunch of options when he left or along the way .. likely but given the AMT/Tax implications not necessarily a given
ChuckMcM 10y ago
I think this would have been a good question to answer. I recognize that Nick might be uncomfortable answering it. There are always questions around how "successful" employees are versus founders, and the situations all are a bit different. For example, in my experience I was employee #9 at GolfWeb (a startup in 1995) and my stock was worthless when CBS Interactive acquired the company, I was employee 1990 at Sun and at Sun's peak valuation in 1998 the total stock I had owned would have been worth over $10M (I didn't have it all at that point :-), having sold much of it for mundane things like down payments on houses and cars and such, but the point was the equity from Sun was much higher than it was from the "startup" and I wasn't a founder in either case) People who joined Google (or Apple!) in 2009 and are still there, probably did quite well on their stock if they held it. To answer your more basic question, when you exercise your option at a non-publicly traded startup, your shares will be covered by the purchase contract that is included in the option. That contract can (and often does) restrict to whom you can re-sell those securities. As the company keeps the books on who actually owns the shares, they have a lot of control over them. For example they can refuse to transfer them to a buyer when you and the buyer approach them to settle your transaction. And since there aren't a lot of liquidity events where employees can sell stocks these days, its an interesting question to explore.
- pm90 10y ago
  Why are there such restriction on who can sell and to whom? And these sound really arbitrary: seems like the company can deny the sale of shares for any reason whatsoever.
  - mooreds 10y ago
    > Why are there such restriction on who can sell and to whom? Why? Power and incentives. Power because when you have equity you are an owner, and founders and investors of private companies (and public companies for that matter) are concerned with who shares ownership. Incentives because if they restrict your options, you might stay longer and work harder to have a liquidity event.
- Retric 10y ago
  There is a way around this where you sell options on the future sale of your stock. But as you might guess this lowers your sale price.
lpolovets 10y ago
Here's my example from LinkedIn: I joined early (company had a founding team of almost 10 people, and I was the 3rd or 4th hire after that). I got 0.3%. I vested about 0.135% before going to another company. Sold 1/5 of that in secondaries before the IPO, leaving me with ~.11% undiluted. After all of the dilution, it was more like .05%. I sold that shortly after the company went public (at an avg. valuation of roughly $10b). Uncle Sam took a big chunk. I have a few software eng friends who joined LinkedIn shortly after I did, stayed well past their initial 4-year grants, and IIRC after full vesting they had 0.10%-0.15% after dilution at the time of IPO. On thing to add: early equity grants used to be much smaller in 2003, so I wouldn't be surprised if an early employee of Airbnb or Dropbox or a similar company will have more like 0.3%-0.5% after dilution at the time of IPO.
- vinhboy 10y ago
  Thanks for being so open. I like hearing real world experiences. My take away here is that unless you are founder, or the company goes for billions, you don't really make much.
  - lpolovets 10y ago
    I think that's probably true. One exception might be very early employees who get 0.5%-3.0% equity in a company that sells for $100m or $200m. You can probably walk away with $1m or $2m for a couple of years of works. With a multi-billion-dollar exit, you might end up with $10m or $20m someday, but it'll be many years into the future -- and there will be many tempting opportunities to sell stock early along the way.
    - lisper 10y ago
      > many tempting opportunities to sell stock early along the way This. It's really easy to make money in hindsight. If you'd bought GOOG at the IPO in 2004 and held it until 2007 you would have had a 6.6x return. If you'd held it until today you would have had a 13x return, but a much lower IRR. On the other hand, if you'd bought Zynga at the IPO you'd be down 66% five years later and still waiting for it to bounce back. It's a lot easier to make hypothetical money in the past than it is to make real money in the future.

by xiaoma 10y ago

the_economist 10y ago

He likely owns about 0.5 - 1.5% of the company, after several rounds of dilution. So at a $30 billion valuation he is worth somewhere between 150 - 450 million. There is always a way to sell shares, although I don't know if Airbnb has made a formal offering available to employees.

a_small_island 10y ago
Do you have a source or are you just guessing?
- gargarplex 10y ago
  I know AirBNB has let some employees take $ off the table in financing rounds. http://allthingsd.com/20111002/airbnb-investor-chamath-palihapitiya-settle-differences-with-employees-to-get-liquidity/ http://allthingsd.com/20111002/airbnb-investor-chamath-palih... My guess is that 0.5% is too high of a floor for post dilution and he probably had 10bps to 50bps at most
- the_economist 10y ago
  Just guessing, and assuming they were relatively generous with equity since they seem like the type of company that would be.
webwright 10y ago
I'd guess more .2 - 1.0 after rounds of dilution, but it depends on when he came on board. The $30B valuation is preferred shares, right? If he sold any before liquidity, it'd be common shares, which is often deeply discounted (~33% of preferred).
- mrgordon 10y ago
  Yes I agree, 0.5% is quite a high estimate for being the low end of the range. Airbnb common shares as well as those of other hot startups (e.g. Uber) are trading fairly close to the price of preferred though if one obtains liquidity.
limeyx 10y ago
Thats also assuming he was able/willing to exercise a bunch of options when he left or along the way .. likely but given the AMT/Tax implications not necessarily a given

ChuckMcM 10y ago

I think this would have been a good question to answer. I recognize that Nick might be uncomfortable answering it. There are always questions around how "successful" employees are versus founders, and the situations all are a bit different. For example, in my experience I was employee #9 at GolfWeb (a startup in 1995) and my stock was worthless when CBS Interactive acquired the company, I was employee 1990 at Sun and at Sun's peak valuation in 1998 the total stock I had owned would have been worth over $10M (I didn't have it all at that point :-), having sold much of it for mundane things like down payments on houses and cars and such, but the point was the equity from Sun was much higher than it was from the "startup" and I wasn't a founder in either case) People who joined Google (or Apple!) in 2009 and are still there, probably did quite well on their stock if they held it. To answer your more basic question, when you exercise your option at a non-publicly traded startup, your shares will be covered by the purchase contract that is included in the option. That contract can (and often does) restrict to whom you can re-sell those securities. As the company keeps the books on who actually owns the shares, they have a lot of control over them. For example they can refuse to transfer them to a buyer when you and the buyer approach them to settle your transaction. And since there aren't a lot of liquidity events where employees can sell stocks these days, its an interesting question to explore.

pm90 10y ago
Why are there such restriction on who can sell and to whom? And these sound really arbitrary: seems like the company can deny the sale of shares for any reason whatsoever.
- mooreds 10y ago
  > Why are there such restriction on who can sell and to whom? Why? Power and incentives. Power because when you have equity you are an owner, and founders and investors of private companies (and public companies for that matter) are concerned with who shares ownership. Incentives because if they restrict your options, you might stay longer and work harder to have a liquidity event.
Retric 10y ago
There is a way around this where you sell options on the future sale of your stock. But as you might guess this lowers your sale price.

lpolovets 10y ago

Here's my example from LinkedIn: I joined early (company had a founding team of almost 10 people, and I was the 3rd or 4th hire after that). I got 0.3%. I vested about 0.135% before going to another company. Sold 1/5 of that in secondaries before the IPO, leaving me with ~.11% undiluted. After all of the dilution, it was more like .05%. I sold that shortly after the company went public (at an avg. valuation of roughly $10b). Uncle Sam took a big chunk. I have a few software eng friends who joined LinkedIn shortly after I did, stayed well past their initial 4-year grants, and IIRC after full vesting they had 0.10%-0.15% after dilution at the time of IPO. On thing to add: early equity grants used to be much smaller in 2003, so I wouldn't be surprised if an early employee of Airbnb or Dropbox or a similar company will have more like 0.3%-0.5% after dilution at the time of IPO.

vinhboy 10y ago
Thanks for being so open. I like hearing real world experiences. My take away here is that unless you are founder, or the company goes for billions, you don't really make much.
- lpolovets 10y ago
  I think that's probably true. One exception might be very early employees who get 0.5%-3.0% equity in a company that sells for $100m or $200m. You can probably walk away with $1m or $2m for a couple of years of works. With a multi-billion-dollar exit, you might end up with $10m or $20m someday, but it'll be many years into the future -- and there will be many tempting opportunities to sell stock early along the way.
  - lisper 10y ago
    > many tempting opportunities to sell stock early along the way This. It's really easy to make money in hindsight. If you'd bought GOOG at the IPO in 2004 and held it until 2007 you would have had a 6.6x return. If you'd held it until today you would have had a 13x return, but a much lower IRR. On the other hand, if you'd bought Zynga at the IPO you'd be down 66% five years later and still waiting for it to bounce back. It's a lot easier to make hypothetical money in the past than it is to make real money in the future.